Boral's Timber business is largely New South Wales-based, with sales predominantly into East Coast markets. Earnings from the Timber division are largely underpinned by new dwelling construction and alterations and additions as well as commercial projects and some infrastructure work. Activity in Timber's two largest state markets, New South Wales and Queensland, was down significantly during the year, with new dwelling approvals down 26% and 37%, respectively. A comprehensive program of plant shutdowns and slowdowns has been implemented to reduce inventory with lower sales volumes.

The Timber division employs around 680 people in its hardwood, softwood and plywood operations, located on the East Coast of Australia. Timber operates 17 manufacturing sites and five distribution outlets. Products are sold into the structural, commercial and renovation markets and are distributed across domestic and export markets.

Hardwood
Boral's hardwood business operates 15 manufacturing facilities in New South Wales and distributes product to domestic and export markets. The business has a strong position in both structural and flooring markets. Through Sawmillers Exports Pty Ltd (SEPL), Boral exports small quantities of woodchips processed from sawmill waste, forest residues and plantation stock from the hardwood operations in northern New South Wales.

Softwood
Softwood's single manufacturing facility is located at Oberon in New South Wales and operates through a joint venture with Carter Holt Harvey. The mill has a capacity of around 725,000 m³ per annum. Softwood products are primarily sold in East Coast markets.

Plywood
Boral is Australia's leading plywood producer and operates one large plywood operation at Ipswich in Queensland. Products are sold in all major Australian markets.

Sales revenue from the Timber division of $256 million was 6% lower than last year, reflecting significantly reduced sales revenue in the June half. Reduced housing construction activity, particularly in New South Wales and Queensland, together with a significant decline in demand from commercial, mining and industrial segments, caused domestic sales volumes to be down 11% for the year and down 18% in the second half. Export residue sales volumes were similar to the prior year.

To adjust to reduced levels of demand, production curtailment initiatives were undertaken during the year with the mothballing of the Walcha sawmill and the closure of the Grafton parquetry operation in the first half of the year. Production was reduced at most other facilities, particularly in the second half of the year. Production curtailment strategies, including plant slowdowns and mothballing and reduced capital expenditure, resulted in lower inventories and improved cash flow compared to last year.

Product price gains of around 4% partially offset a significant increase in log costs and increased energy costs. Consolidation of Boral Timber's Brisbane warehouse network into one location together with step change operational improvements in Hardwood, Plywood and Engineered Flooring operations is delivering benefits and resulted in a 15% reduction in the workforce in the Timber business in 2008/09. Despite a strong focus on cost reduction during the year, lower production volumes than sales, cost increases and restructuring costs resulted in a reduced EBITDA.

For Timber's safety and environmental outcomes for 2008/09 refer to Review of Operating Divisions - Timber of Boral's 2009 Sustainability Report.

Outlook
Boral Timber's results in 2009/10 should improve through a full year's benefit of the operational improvement programs commenced in 2008/09, further restructuring of the fixed cost base and strengthening housing markets in New South Wales and Queensland. Production restraint should help to reduce inventories and generate increased cash flow in the year.

Bryan Tisher, EXECUTIVE GENERAL MANAGER